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Inflation Targets: Cutsinger’s solution

By Bryan Cutsinger | Apr 14 2025
Question: Some economists have argued that the Fed should raise its inflation target from 2 percent to 3 or even 4 percent. Why might the effect of a higher inflation target on the quantity of real money balances demanded be larger in the long run than in the short run?   Solution: Economists often treat ...

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International Trade Exam Question

By Jon Murphy | Apr 4 2025

Question: Part of the goal of NAFTA (and its successor) was to economically integrate the North American economies. On April 2, President Trump imposed wide-ranging tariffs on just about everything imported into the US.  Included are automobiles manufactured in Mexico and Canada.  The next day, April 3, Stellantis (who owns Chrysler, Jeep, and other brands) announced .. MORE

Featured Comment

Jose: Deport California is not as wackadoo as you jest. I mean; Canada the 51st state. Buy Greenland. Bibi is going  to give Gaza to DJT. Tariffs will make us wealthy...

David Seltzer, April 12

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Cross-country Comparisons

Trade deficits forever?

By Scott Sumner | Apr 17, 2025 | 8

Josh Hendrickson has a new Substack post that discusses the implications of the US dollar’s role as an international reserve currency. This caught my eye: When you are taught a typical model of international trade with flexible exchange rates, discussion of the balance of trade goes something like this. If a country runs persistent trade .. MORE

Books: Reviews and Suggested Readings

The Display Test: Market Efficiency

By Kevin Corcoran | Apr 17, 2025 | 4

While giving some of my thoughts on R. R. Reno’s book Return of the Strong Gods, I gave Reno credit for doing very well at something called the Display Test. I quoted from Justin Tosi and Brandon Warmke’s book Grandstanding: The Use and Abuse of Moral Talk, where it was described this way: Virtually every policy proposal .. MORE

Liberty

Whataboutism

By David Henderson | Apr 16, 2025 | 15

  I often see people in debates online accuse other people of playing “Whataboutism.” Here’s a standard definition: Whataboutism is a pejorative for the strategy of responding to an accusation with a counteraccusation instead of a defense against the original accusation. That raises two issues. First, is whataboutism ever a reasonable way to argue? Second, .. MORE

Books: Reviews and Suggested Readings

Colloquial Law

By Jon Murphy | Apr 16, 2025 | 62

For any science to be broadly understood, it needs to be communicated in a helpful manner.  Indeed, much of my research focuses on how experts communicate their opinions and on the institutions under which that communication is improved.  In this post, I turn my eye toward another form of expert opinion, the law. With law, .. MORE

Behavioral Economics

Sleazy Boomers and Wholesome Zoomers

By Scott Sumner | Apr 16, 2025 | 5

The Economist has a very interesting set of articles on recent trends in western culture.  The first one is entitled Aging disgracefully, and documents a major increase in promiscuous sex and drug use among the baby boom generation.  (Yes, that’s my generation.)  The second article notes a dramatic decrease in this sort of behavior among .. MORE

International Trade

Why Shouldn’t We Subtract the Added Value from Imports from the Trade Deficit?

By David Henderson | Apr 15, 2025 | 4

Regular reader Alan Goldhammer wrote: I fully understand how tariffs work and know that the calculation for the reciprocal tariffs was something pulled out of a hat (or some malfunctioning AI tool). However, I don’t know if imports are fully modeled for how much they add to the US economy. Any small business that brings in Chinese .. MORE

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Bloggers David Henderson, Alberto Mingardi, Scott Sumner, Pierre Lemieux, Kevin Corcoran, and guests write on topical economics of interest to them, illuminating subjects from politics and finance, to recent films and cultural observations, to history and literature.

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International Trade

My Weekly Reading for April 13, 2025 3

Benjamin Anderson (1949): The Crowning Financial Folly of the Hawley–Smoot Tariff by Alan Reynolds, Cato at Liberty, April 8, 2025. Excerpt: “There came another folly of government intervention in 1930 transcending all the rest in its significance and in its baleful consequences. In a world staggering under a load of international debt, which could be .. MORE

Books: Reviews and Suggested Readings

Social Contract Ambiguity 22

Michael Huemer’s book The Problem of Political Authority examines various arguments given in favor of establishing the existence of political authority, which he defines as a property containing two aspects: (i) Political legitimacy: the right, on the part of a government, to make certain sorts of laws and enforce them by coercion against the members of its .. MORE

Books: Reviews and Suggested Readings

Unshackling the Shackled Leviathan 22

Commenting on a post of mine, co-blogger Scott Sumner offered a striking reflection: “I feel sort of like Rip Van Winkle, like I fell asleep in the USA and woke up to find myself living in a banana republic.” According to a Wall Street Journal story, some members of Congress are beginning to start waking .. MORE

Book Reviews and Suggested Readings

Silicon Valley Humanists

By Arnold Kling

… the path forward will involve a reconciliation of a commitment to the free market, and its atomization and isolation of individual wants and needs, with the insatiable human desire for some form of collective experience and endeavor… the atomization of daily life in America and the broader West left a lane open for technology .. MORE

Emotions in the Driver’s Seat

By Arnold Kling

A common misconception is that if a person has an incentive to do something, that incentive will influence his behavior… people are incentivized against smoking… Almost every smoker knows the costs and risks of their habit, even if they downplay them. The problem is that, roughly speaking, the part of the brain that stores knowledge .. MORE

Universal Economics: Necessary Reading for the Well-Trained Economist

By Alexander William Salter

A Liberty Classics Book Review of Universal Economics, by Armen Alchian and William Allen.1 What do you do when economists stop believing in economics? The “dismal science” never merited its dreary epithet, but trends in economics education at the graduate and undergraduate levels could change that. Ph.D. courses are saturated with hyper-mathematical models that are .. MORE

The Wrong Road to Freedom

By David R. Henderson

A Book Review of The Road to Freedom: Economics and the Good Society, by Joseph E. Stiglitz.1 Introduction Columbia University economics professor Joseph E. Stiglitz has recently published a book titled The Road to Freedom: Economics and the Good Society. In it, Stiglitz, who shared the 2001 Nobel Prize in economics with George Akerlof and .. MORE